By now you’ve either heard President Barack Obama channeling Robin Hood, or numerous TV stations and countless Internet sites weighing in on presumptive GOP Mitt Romney’s tax reform ideas.
Most pundits have used a report prepared by a relative newcomer on the think tank scene, the Tax Policy Center.
Obama maintains Romney is just looking out for “the rich.”
The president usually categorizes the rich as singles making $200k a year and that’s the bottom rung for the income tax hike Obama wants.
Now a top tax think tank has weighed in on Romney’s plan, pointing out some information most media omitted. Dr. William McBride provided a general analysis at The Tax Foundation, an organization founded in 1937.
Begin with an analogy “even a caveman” could understand:
“Imagine a society with 5 people, where the two richest people pay all the taxes, the middle person pays nothing, and the two poorest people actually have a negative tax rate, meaning the rich are paying them through the tax code. Then any cut in the tax rate will disproportionately benefit the rich guys. This is the federal income tax code, in a nutshell.”
The U.S. has a “progressive tax system.” As your income increases, you pay a higher share of taxes. Just for pretend purposes, imagine you took home $100 for a day’s work but a co-worker took home $200. If the two of you are taxed progressively, the $200 worker will hand over more of his earnings percentage-wise. That higher paid worker will even see some of the money he handed over go directly to the $100 worker.
When politicians talk about a “progressive” tax code, they aren’t alluding to a code that is enlightened—the term simply has to do with the amount you’re taxed.
What we actually have in the U.S. is a redistributive tax code, with the federal government opting to take money from one group of workers and hand it to another.
That is why any tax cut will disproportionately go to higher income earners—they’re already bearing the largest burden of taxes.
Redistribution of income by use of the tax code is now “at a record high,” said the Tax Foundation. McBride wrote:
“This is pretty exceptional from a global perspective. The OECD [Organisation for Economic Cooperation and Development] finds that we have the most progressive income tax system in the industrialized world. In this context, it is well past time to consider the costs and benefits of such an extremely progressive system.”
It’s also important to point out what the Tax Policy Center admitted—making assumptions about how Romney’s plan would ensure “revenue neutrality.”
What we need to ask ourselves is why we have to be revenue neutral on tax breaks. Proponents of small government know that government grows power by accumulating wealth. Those who view the Constitution as a document that limits federal powers in the interest of assuring liberty know that a government as large as the present U.S. bureaucracy is, if history is our judge, a direct threat to individual liberty.
When Obama talks about tax breaks, he gives the impression that U.S. wealth is his to hand out in any manner he sees fit.
The poor and many in the lower middle class pay no income taxes. If you ask a person from that economic sector if he wants to give the government more of his money, the answer would likely be “No.”
Obviously tax reform is needed. If that doesn’t occur, the government will simply continue to expand its role in the private sector and the taxpayer picks up an ever-increasing tab.
Obama doesn’t explain the context of the tax code in his speeches. That’s understandable—he’s a politician who wants to be reelected. That’s why he doesn’t explain any benefits we could see from Romney’s ideas. McBride at The Tax Foundation said:
“TPC fails to acknowledge any of the benefits of Romney's plan, most pertinently that lower rates combined with a broader tax base should lead to significant economic growth. The benefits of such growth will benefit some more than others, but arguably the currently unemployed will receive the greatest benefit in the form of a job.”
Democrats have already imposed approximately 20 tax hikes between ObamaCare and hikes included in other bills. One example: the recent tax hike on roll-your-own-cigarette small businesses. That small biz tax hike was agreed to by Republicans who reached across the mythic aisle.
The Libertarian leaning Reason website explained why ObamaCare is the largest tax hike in U.S. history. Reason said:
“On page 19 of the 36-page PDF of the CBO’s [Congressional Budget Office] analysis of the ObamaCare law from when it was passed is a line that says “total revenues” from 2010 to 2019 and lists the number 525, which is the way people in government write $525,000,000,000 when they are trying to pass a $525,000,000,000 tax increase.”
Reason also pointed out what many fiscal conservatives already know—“ a $525 billion tax increase would indeed be the largest in American history, at least in nominal dollars. All of which makes President Obama’s latest campaign-season pose as a tax cutter seem even phonier than usual.”
Media have never quizzed Obama about the numerous specific tax hikes in ObamaCare.
The U.S. tax code had approximately 72,536 pages in 2011. Obama’s policy has and will increase the length and the bottom line is you can break the law and maybe not even know it.
After all, Obama’s Treasury secretary Tim Geithner and the Democrat congressman, Charles Rangel, who chaired the committee overseeing tax matters, broke the law and both claimed they didn’t know they did it. They’re not the only Democrats who dodged taxes.
A final thought—Robin Hood sounds good on paper until he shows up at your door wanting part of what you earned.
(Analysis by Kay B. Day/August 8, 2012)
Related at The US Report
Read more past articles at The US Report about taxes.